UK Succession and Tax | Private Wealth | Wills & Probate
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Many employers offer senior employees a Death-in-Service benefit as part of their competitive package. Typically, this entitles an employee's beneficiaries to a lump sum payment should the employee pass away whilst in active service for the company.
Whilst the benefit is common, not many employers understand what their obligations as Trustees are or what to do when a claim is made. Liabilities arise out of the duties the Trustees take on for the company, and there is an expectation of them taking the role to do the job 'correctively'. A risk of not meeting those obligations opens them to personal criticism due to a breach of their duties. This can result in appeals from potential beneficiaries and in some circumstances court action.
In this guide we take a closer look at this benefit, the duties it creates for Trustees and how we can help the Trustees meet those obligations.
Death-in-Service benefits are a discretional entitlement considered by the Trustees of a company included in the contract of employment of individual employees. The entitlement sets up a trust of a lump sum figure payable to the employee's beneficiary/ies should that employee pass away whilst in active service. The lump sum figure is generally equivalent to 3 or 4 times the employee's salary, but the specifics of such payment would be detailed within the employment contract.
The definition of 'beneficiaries' for the purposes of these benefits is often determined by the Benefits Scheme of the company in particular. Generally, the term 'beneficiary' of the deceased is wide and will include any person who is a close relative, anyone financially dependent to any extent on the deceased, and anybody who has been named in the Expression of Wishes form. This usually includes co-habiting relationships due to some form of dependency.
The Expression of Wishes form is a document that allows an employee to specifically nominate a beneficiary or beneficiaries to receive such benefit should it be applied. It should be clear that this document is not binding upon the trustees and is just one consideration of such claims.
As this benefit sets up a trust, the lump sum payable does not form part of the deceased's estate and does not attract Inheritance Tax for that reason; it is instead a discretional payment considered by the Trustees of the company. I should be clear that although the Trustees have the full discretion to make any decision they should see fit when considering these claims, it is important that the Trustees are considering all aspects of the claim, which would include the deceased's personal circumstances and family.
We offer services to company trustees to assist with the preparation of claims, and the assessment and action of claims. Our service in more detail includes:
If you feel that your company Trustees may benefit from our assistance, please do not hesitate to contact Michelle Seddon, Legal Director in our UK Succession & Tax team.